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To understand Web3, we must understand the preceding eras of the internet and how consumers engaged with it
What is Web3?
Introduction
2
Web 1.0 Web 2.0 Web3
1990s 2000 – 2010s 2020s
The Internet was populated with static pages filled
with text. Users couldn’t do anything with the static
pages except read them from our personal
computers – individuals didn’t create content
The social network era – no longer was the web
purely text, but it became interactive – pictures,
likes, shares, messages, etc. Individuals no longer
just consumed content but actively created it but
captured little of this value.
Web3 promises to change this ownership model.
Individuals don’t only consume and contribute to
the creation of content, but also own parts of it!
Read-Only Read-Write Read-Write-Own
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Blockchain has enabled the internet to not only facilitate the transfer of information but also value – Web3 companies
are not just offering their services, they are sharing the value created with their users
The Transfer of Value
Introduction
3
Content – post to earn
Attention – browse to earn
Spare Computer Power – share to earn
Spare Computer Storage – store to earn
Spare Internet Bandwidth – download to earn
Web 2.0 Web3 Transfer of Value
Networking
Storage
Servers
Browser
Social
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The Transfer of Talent
Introduction
4
While capital might ebb and flow, devs are migrating to Web3 on mass. Where talent goes, innovation follows. In
December of 2021, there were 18,416 monthly active developers on Web3 projects, a 10x increase from 2016
Web3 Monthly Active Developers Since 2009
Source: Electric Capital Figures
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The internet finally has a native digital currency that is frictionless, programmable, ownable and permissionless
Why Web3 Matters
Introduction
5
There is frictionless, near instantaneous payments with no middlemen
2
3 Human cooperation can be programmed, incentives can create communities, marketplaces & public
goods
4 Everyone can have ownership over their once worthless assets – identity, data & reputation
1 Web3 is permissionless, no one can be excluded leading to financial inclusiveness
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• Smart contracts are code that make up the logic function used in
decentralised applications (Dapps).
• Smart contracts are standardised through set community
standards that describe how certain types of contracts should
behave (e.g. ERC-20 token standard for Ethereum ecosystem).
• This type of standardisation enables composability.
• Composability is one of the most powerful aspects of crypto –
like Lego blocks, smart contracts for different protocols and
applications can easily plug into each other and be assembled
into larger systems.
• Smart contracts within decentralised finance (DeFi) represents
one of the earliest and most vibrant examples of composability –
often referred to as “Money Legos”.
Lego Blocks and Composability
Understanding Web3
7
Web3 is collaborative not competitive. Entrepreneurs can build Lego blocks on top open protocols like Ethereum
using smart contracts. The base layer is like the operating system, only it does not control its app store or apps
Operating System
App Store
Apps
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We can think of how developers/companies decide between crypto ecosystems as analogous to how we decide on
which city to live in when trying to understand why different ecosystems exist
Crypto Ecosystems and Cities
Understanding Web3
8
City of Ethereum City of Solana
• Government policies (consensus models and roadmap)
• Standard of living (access and cost to key infrastructure)
• Proximity to relevant economic opportunities (levels of demand in local Dapp sectors)
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Crypto Cities have Problems
Understanding Web3
9
Consider these 3 options when it comes to city planning:
• Low density,
• Low taxes, and
• Nice things (well maintained streets, infrastructure, great parks, etc.)
You can only optimise for 2.
Similarly, for crypto networks, today they are all burdened with the
infamous Blockchain Trilemma:
• Scalability
• Security
• Decentralisation
To date, all traditional blockchains have only been able to optimise for 2.
Which ecosystem is better? Today, all crypto ecosystems have to make trade-offs, like when it comes to city planning.
This is called the blockchain trilemma – a trade off between scalability, security and decentralisation.
Traditional Chains (BTC, ETH)
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The infrastructure layer comprises the tools required to build these crypto cities, it is generally stack agnostic
All Cities Need Infrastructure
Understanding Web3
10
Note: Many L2 scaling solutions are purpose built for Ethereum but we classify as them as infrastructure companies.
Infrastructure
ERC 20 Tokens
Apps Apps
SPL Tokens
Apps
DOT Tokens
Definition: We define Web3 infrastructure as the B2B companies that offer development tools and resources used to service
the crypto ecosystem.
Example: An example of an infrastructure company would be Chainlink who provides data validation for smart contracts.
Features: Generally, infrastructure companies are blockchain agnostic and can service a company building on top of
Ethereum just as readily as Solana.*
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For the applications layer to reach one billion users, there needs to be a strong middleware and operating layer to build
on top of – the infrastructure of Web3
Scaling Blockchain to One Billion Users
Infrastructure Thesis
12
Main Chain
(Operating Layer)
Execution
Data Availability
Consensus
Applications
(Application Layer)
Consensus
Data Availability
Execution
…
Data Management
API Management
Application Services
Applications
(Application Layer)
Modularisation of main chain functions
Middleware services emerge to provide key capabilities
outside of what’s offered by the operating layer
Middleware Layer
Infrastructure
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While we can speculate on what the next wave of DeFi products will look like and the value of Cryptopunks, we
believe focusing on building key foundational infrastructure is critical to stabilising the ship as the broader market
expands
The More Activity on Top, The Better
Infrastructure Thesis
13
Scaling Solutions
Key Management & Compliance
Oracles
Blockchain APIs
Decentralised Storage & Query
General Infrastructure
Validium
Plasma
Channels
Sidechains
Hybrid
Rollups
ZK-Rollups Optimistic Rollups
Infrastructure
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Leading Infrastructure Projects
Infrastructure Thesis
14
Company Year Founded Focus Target Market Private Funding (US) Market Cap (US) Traction
2017 Blockchain APIs
All Crypto
Companies
$360M $45B $700M (estimate)
2014 Off Chain Oracle
DeFi, Prediction
Markets & Insurance
Companies
$32M $24B Unknown
2018 Decentralised Query Layer
All Crypto
Companies $20M $5.5B Unknown
2014 Decentralised Storage Layer
NFT Marketplaces &
Consumer Crypto
Companies
$258M $57B $16M
2016 Decentralised DNS Crypto Users Unknown $700M 271k Users
2013 Key Management
Exchanges,
Marketplaces
Unknown Unknown Unknown
2015 Decentralised Cloud
All Crypto
Companies
$2M $270M Unknown
Note: Unless said otherwise, traction refers to revenue per year. Data is sourced from Token Terminal and companies website.
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Case Study: Chainlink
Infrastructure Thesis
15
L2
L1
L3 Smart Contracts
Real World Event
Smart Contract Oracle
An Oracle takes data from the real world from multiple sources, finds a source of truth and then feeds it into smart
contracts.
It’s a vital piece of Web3 infrastructure as it allows smart contracts to make conditions on real world events with trust that neither party will be exploited by faulty data.
It does this by taking the inputs from multiple data sources and reaching a consensus about the outcome of the real world event.
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Case Study: Starkware
Infrastructure Thesis
16
L1
L2
Starkware is a pioneer in creating scaling solutions for blockchains.
L2 Projects like Starkware could make Ethereum achieve 100,000 transactions per second
Marketplaces, Dapps
L1 Ethereum can only do 15 transactions per second
B2B2C
Specifically, they use ‘ZK rollups’, a complex form of cryptography to reduce the amount of data that needs to be
processed on a blockchain, improving scalability and reducing gas fees. Their technology has processed over 96M
transactions. Starkware is a B2B2C company who allows marketplaces and dapps to deploy using their network
so they can offer their end user faster and cheaper smart contracts on the blockchain.
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Whitespaces
Infrastructure Thesis
17
Areas What is it? First Movers
Programable
Cashflows
• In the future, it is likely all employees will offer cryptocurrency as a payment method.
• Instead of having to wait on payment cycles, payments can be continuous in real time. You could earn money in your
bank account per minute worked.
• Liquidity will no longer be an issue for the individual, it will be a company problem – ‘we always need to have enough
to pay employees on time’.
Identity
Management
• Credit scoring results in most of the world being unbanked. The system is siloed and does not follow you as you go
from country to country, with all the discretion being in the hands of duopolies around the world.
• In the future, digital identity will be synonymous with credit score and will allow most of the world to become
bankable, people can port this identity from Kenya to New York.
• Lending institutions will be able to consider any on chain data in the assessment of credit scores – reputation, online
community involvement and digital asset collections.
Vertical Specific
Scaling Solutions
• In the early stages of Web 2.0, horizontal platforms were the first to gain traction such as Salesforce as a CRM for all
companies. Then vertical platforms emerged as the market for software expanded exponentially.
• It is likely the same trend will play out in Web3, where more vertical crypto scaling solutions will emerge as the
industry continues to expand and mature.
• We have seen this already with Immutable X offering a scaling solution solely for minting NFTs on Ethereum
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Aussie Crypto Market Map
Australia
19
The Aussie ecosystem is far from mature with a few internationally recognised projects, although momentum is
gaining…
Private Blockchain
Public Blockchain
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Immutable X
Australian Case Study
20
L1
L2 ZK Rollups
Company/Project
Immutable X has a marketplace for NFTs. But it’s more than that. It also acts as an API for companies that want to mint NFTs with no gas fees, instantaneously on top of
the Ethereum blockchain. The companies can use Immutable X APIs to mint and sell NFTs on their own platforms. It is the fastest company to become a unicorn in
Australian history with over $100 million in funding to date.
Immutable X Marketplace
Project’s Marketplace
2% Fee
4% Fee
API Call
A NFT Game made
by Immutable
Immutable is not just an NFT gaming company, it’s an infrastructure one akin to Stripe for NFTs
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Mycelium
Australian Case Study
21
Mycelium have three key projects – Tracer Dao, Chainlink Oracle Reputation and Secure Data Links. We will focus on the last two as they are Web3 infrastructure
companies. TracerDAO alone was valued at $US45 million in mid 2021.
L2
L1
L3 Smart Contracts
Oracle
Oracle Verifier
Oracle Node
B2B
DeFi apps need data from the real world e.g. price of gold. They get it from
Oracles. Mycelium runs a node that gives data as well as a platform that
verifies other nodes to make sure their data is accurate.
Mycelium is a house of brands – some are providing Web3 infrastructure for oracles
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ArcX is trying to build a passport for Web3. All your data on chain – what you spend, how quickly you repay loans, can all be used to provide a credit score for the
internet. People can use their reputation to get rewards and even provide less collateral for DeFi loans (in the roadmap).
ArcX
Australian Case Study
22
L3 DeFi
L1s
Passport Layer
On chain data
Reputation off chain
ArcX is building a credit score for the blockchain, a passport for Web3
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